The Duopoly of the Airplane Industry

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If you've been on a flight recently, chances are it was an airplane manufactured by Airbus or Boeing. These two companies currently make up 99% of large plane orders across the world, and has little to no competitors. Their sheer control over the industry is largely due to their scramble for control in the past, as seen in the consumption of smaller companies and mergers.

Hypothetically speaking, antitrust laws should be in place to prevent such actions that severely reduce competition, but the reason why this "super duopoly" exists is because of the lack thereof. When Airbus and Bombardier joined, the FTC reviewed the joint venture but eventually decided in court not to block it. 

While these companies are huge and dominate the industry, there is quite a bit of competition between themselves. This can be simplified in an example of protectionism and the prisoner's dilemma. In order to gain market power over each other, subsidies can allow for one country to gain an edge at the expense of the competitor. 

With the prisoner's dilemma, if both companies abstain from making airplanes, they would obviously make zero profits. On the flip side, they were to both make airplanes, they would both lose money because of an over saturation of the market or competition. If one abstains and one produces, the one who produces makes money. 

However with the case of subsidies, it creates a dominant strategy for a subsidized firm to always produce. Subsidies are essentially funds given by a public body to a company to keep their prices low and remain competitive. For example, if subsidies were given to Airbus, Airbus would get extra profit no matter what. In the case of both companies making planes, Boeing would lose money as usual if it didn't subsidize, but now Airbus would get a profit as well. In this case, Boeing will have to stay out of competition knowing this, and Airbus would take the profits.

While this is all hypothetical and oversimplified, it is useful to think of the effects of subsidies on a market. Governments need to subsidize industries in which very few producers compete in an industry (like the airplane industry) and only one firm can remain profitable at a given time. 


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